These incidents highlight a growing litany of concerns that have emerged as China has become the principal contractor and financing source for Bolivia’s state-led national development project under President Evo Morales, and a dominant player in Bolivia’s economy.

According to the official government narrative, Bolivia and China enjoy a cooperative, “horizontal” relationship based on their complementary economic needs and shared political worldview. Morales has characterized the resulting development model as one based on “social justice, sovereignty, identity, and equality.” With China’s assistance, Morales boasts, Bolivia has achieved independence from U.S.-dominated financial institutions like the International Monetary Fund and the World Bank, whose onerous lending conditions in the 1980s and ‘90s undermined the country’s economic and political sovereignty.

Still, growing evidence supports an alternative view put forth by several prominent Bolivian NGOs and other critics: that China’s relationship with Bolivia primarily serves to enhance China’s expansionary interests, rather than Bolivia’s productive capacity, with little regard for Bolivia’s sovereign norms. Behind the discourse of financial sovereignty, the reality is one of greater dependency on extractivism and foreign capital, effectively “substituting one imperialism for another.”

For many Bolivians, the deepening relationship between Chinese companies and the Bolivian state was brought into focus by the recent scandal involving Gabriela Zapata, Morales’s former lover who managed projects for China's CAMC Engineering Company. The megafirm won $580 million in contracts from the Bolivian government, generating charges of influence-peddling—which Morales, supported by a Congressional investigation, has vehemently denied.

Still, the scandal is widely credited with bringing about the controversial defeat, last February, of a referendum that would have allowed Morales to run for a fourth presidential term.

China’s Expanding Bolivian Footprint

Over the past 15 years, China has consolidated its presence in Bolivia gradually but steadily—notwithstanding its primary commitment to other politically compatible nations in the region (e.g., Venezuela, Ecuador, Brazil, and Argentina) with larger economies and coastal ports. Between 2000 and 2014, annual bilateral trade between China and Bolivia increased dramatically, from $75.3 million to $2.25 billion. China has become the fifth largest market for Bolivian exports, mostly raw materials such as minerals, hydrocarbons, wood, and soybeans.

In 2014, China overtook Brazil as Bolivia’s principal source of imports, supplying half the country’s clothing imports as well as cars, motorcycles, cell phones, computers, and other domestic electronics that feed the growing consumerism of Bolivia’s burgeoning middle class. The cost of these value-added Chinese products significantly exceeds what China pays Bolivia for Bolivia’s commodity exports, resulting in a bilateral trade deficit of $4 billion for Bolivia.

Starting with a few low-interest loans in the early 2000s, China has become Bolivia’s principal bilateral creditor. In 2015, the Bolivian government owed more than $600 million to Chinese banks (primarily the Export-Import Bank of China and the Chinese Development Bank), constituting 9.2% of the country’s total foreign debt. These loans have supported the purchase of a vast array of goods and services produced by Chinese companies (public and private) for the Bolivian state and its various enterprises, including roads, bridges, railways, hydroelectric plants, and mining facilities.

Between 2000 and 2015, Bolivia awarded $2 billion worth of contracts to Chinese firms (equal to 6% of the country’s GDP), with financing provided by Chinese banks as well as the Bolivian government and multilateral credit sources. The average interest rate on Chinese loans was 2.9%, higher than the rates charged by multilateral creditors (1.3% – 2.2%).

Over the past two years, as China has ramped up its role in Latin America, Bolivia has become a significantly more attractive investment prospect. With the near-collapse of Venezuela, the rightward drift of Brazil and Argentina, and the overall contraction of Latin American economies, Bolivia—currently boasting the highest projected annual growth rate in the region—stands out as a model of economic and political stability.

In Bolivia’s vast untapped natural resources, rising consumer purchasing power, and seemingly insatiable demand for infrastructure, Chinese companies have perceived a timely opportunity to capture markets and profits. For its part, the Morales government, faced with sharply declining export revenues and commodity prices, has relied increasingly on foreign capital to finance its ambitious Five-Year National Development Plan.

In October 2015, China pledged an additional $7.5 billion (subsequently increased to $10 billion) in a line of credit for strategic government projects. These include at least 9 major road segments and 3 megaprojects in Santa Cruz: construction of the 600 mw Rositas hydroelectric plant—one of South America’s largest; expansion of the Viru Viru airport into a regional hub; and development of the El Mutún steel plant. (China has also expressed interest in financing Bolivia’s proposed bioceanic railroad, which could cost another $10-$15 billion.)

Once realized, this expanded financing commitment—which will more than double Bolivia’s foreign debt—will make China Bolivia’s largest creditor. All projects financed by Chinese loans must be awarded to Chinese companies, which come with their own materials, equipment, and technology, and often their own labor. The new loans will have a combination of commercial (2.5 - 4%) and concessional (up to 1%) interest rates.

As of mid-2016, more than 100 Chinese companies (both public and private) were operating in Bolivia, up from 35 in 2015. Many are large conglomerates which carry out activities in multiple spheres. These megafirms have become the largest government contractors in Bolivia, winning awards for major public investment projects on a “sole source” basis, or through invitation-only solicitations to a limited number Chinese firms.

China’s model of engagement in Bolivia, based on the self-financed provisioning of goods and services to the state (without an equity ownership stake) is something of a departure from its general approach in Latin America, to date. In countries like Brazil, Mexico, and even in Venezuela, Chinese companies are heavily invested as joint venture partners with state enterprises, sharing both risks and rewards. Also in Bolivia, China’s loans are expected to be repaid by the state from continued growth of the economy, unlike “commodity loans” loans in Venezuela and Ecuador, which are repayable, in part, through oil sales.

Still, this model has allowed China to consolidate its presence in virtually every corner of the state, while positioning Chinese megafirms to significantly expand their role through more direct involvement in strategic sectors of Bolivia’s extractive economy.

Evolution of China’s Role

In the early years of Morales’s presidency, China made loans to the Bolivian state for the direct purchase of strategic products like military aircraft and weapons. Some purchases were notorious, such as a set of drilling rigs sold by CAMC Engineering to YPFB, the state energy company, that proved to be defective, and barges commissioned from a Chinese shipbuilder that have yet to be delivered.

More recent government purchases include scanning equipment for the customs service, and a video surveillance system to be installed in six provincial capitals, along with a security command center in La Paz. Additionally, Chinese companies sell buses and minivans to the City of La Paz and local transportation unions, with Chinese loans whose repayment is guaranteed in part by the national government.

In the telecommunications sector, nationalized by Morales in 2008, an early flagship project was the Tupac Katari space satellite, financed with a $250 million Chinese loan, which brings the internet to schoolchildren in remote corners of Bolivia. China’s role in the sector has significantly expanded, with one Chinese company (Huawei) providing telecommunications services to millions of users and another (ZTE) designated as the exclusive supplier for Bolivia’s new national broadband network. Huawei is also now a major supplier of Bolivian smart phones.

In transportation and energy, Chinese companies like Sinohydro, CAMC Engineering, Sinopec, and China Railway are engaged in the construction of multiple government projects, many of which have been plagued by labor, environmental, and feasibility problems. After repeated protests by workers over exploitative conditions, retaliatory treatment, and disproportionate hiring of Chinese nationals, as documented by the Bolivian Center for the Study of Labor and Agrarian Development (CEDLA), Chinese Foreign Minister Wang Yi pledged that China would comply with Bolivia’s labor norms. Still, critics charge that neither the Morales government nor the COB (Bolivian Workers Central, the national trade union federation) has adequately enforced this commitment.

Several infrastructure contracts, including those awarded to CAMC and China Railway for the major Bulo Bulo railway project, have been revoked due to poor performance. A recent contract with Beijing Urban for the Santa Cruz airport expansion, with financing committed under China’s new line of credit, was cancelled just six months after award, when the designated firm sought to cut scope after under-bidding the work.

In the manufacturing sector, Chinese companies have built industrial facilities for the state that, to date, have made limited contributions to the national economy. A paper mill inaugurated three years ago by Shenzhen Vicstar (after a failed Brazilian contract) has yet to turn a profit. A sugar refinery in the La Paz department is barely operational due to faulty planning around sugar harvests and infrastructure. The Bolivian government bears the full financial risk for these precarious enterprises.

In mining, Chinese companies began by building zinc refineries and a tin processing facility for Morales, but are now positioned to play a more significant role. Sinosteel was recently awarded a $450 million contract to develop the El Mutún steel processing plant with Chinese financing, after India’s Jindal abandoned the project. This is the first phase of a multi-stage undertaking aimed at catapulting Bolivia into the global steel market, which could provide significant investment opportunities for China.

China is also playing a major role in Morales’s efforts to develop Bolivia’s vast lithium reserves. Chinese companies, under contract to the state, have developed a small lithium extraction facility, a pilot lithium battery plant, and a potassium salt refinery in the Uyuni salt flats, all with Bolivian funds. In September 2016, China received Bolivia’s first lithium export: 15 tons of lithium carbonate, delivered at a substantially below-market price.

Meanwhile, the transnational China Natural Resources is moving forward with plans to develop and operate its own copper smelting plant in Uyuni, after buying out an existing Chinese family firm. And while the Morales government has vigorously denied any Chinese involvement (or water diversion) associated with the controversial La Paz mining concessions, environmental activists from the Bolivian Forum on Environment and Development (FOBOMADE) charge that the same Chinese company has acquired mining interests in Madidi National Park, gateway to the Bolivian Amazon, where it has been carrying out operations without an environmental license.

Similarly, the long-term interest shown by Chinese oil companies in Bolivia’s hydrocarbons sector is now beginning to bear fruit in the form of direct investment opportunities. YPFB has recently contracted with Sinopec, already well-established in Bolivia through its road construction projects, and BGP, a subsidiary of China National Petroleum Company, to undertake exploratory activities in the Bolivian Amazon, on protected national reserves which are also indigenous territories. According to the Bolivian Center for Documentation and Information (CEDIB), these destructive activities have continued despite protests by indigenous groups, including concerns about reported near-encounters with indigenous people living in isolation.

Development and Dependency

Overall, while China’s deepening presence has enabled Bolivia to address its significant infrastructure needs without the burdens of U.S.-style conditionality, this has come at considerable social, economic, and political cost.

For Bolivian workers, Chinese companies have re-introduced authoritarian and exploitative practices that undermine hard-won labor protections, while diverting jobs to foreign nationals, despite Bolivia’s abundant available workforce and scarcity of formal employment. The government’s failure to strictly enforce labor norms against Chinese contractors raises questions about the goals of Morales's state-led development project.

Also hard hit are domestic construction companies, which can’t compete with Chinese megafirms and are precluded from bidding on Chinese-financed projects in any case. Many Chinese companies end up subcontracting with local operators, such as truckers, through exploitative arrangements that lead to community conflicts. As the president of Cadecocruz (representing Santa Cruz construction contractors) notes, “Bolivians are building Bolivian public works, but with a foreign boss.”

Other small- and medium-sized domestic producers are being squeezed out by cheap Chinese imports. Over the past 5 years, Bolivian imports of Chinese furniture have cut domestic production in half, adversely affecting some 50,000 Bolivian carpenters. Six textile firms have recently shut down, along with Enatex, the state textile company. Morales recently acknowledged that even the fabric to make the ruling MAS (Movement Towards Socialism) party’s banners and whipalas, the indigenous flag, is imported from China.

Chinese-built and financed megaworks, with their attendant deforestation, soil degradation, and ecological disruption, are imposing significant environmental costs on communities and regions already suffering the effects of climate change. Hardest hit are indigenous peoples, whose homes and livelihoods are directly threatened, especially in the Amazon region where so many infrastructure projects are located. Elsewhere, projects like Mutún and lithium extraction in Uyuni pose major ecological challenges—which Chinese firms, with their global track record of environmental abuse, and the Morales government, with its lax enforcement of environmental norms, seem ill-prepared to address.

For critics like CEDLA, the privileging of Chinese firms has tainted the process and outcomes of Morales’s state-led development project. In Chinese-financed ventures, the Bolivian state incurs the debt, assumes the risk, and must accept the loan terms and conditions, often including imposition of a less than optimal contractor (for example, an oil company building a road outside its field of expertise). The flexibilization of contracting rules in favor of negotiated “turnkey” arrangements favors contractors and weakens the institutional role of the state.

As for economic impact, China’s $10 billion credit pledge could increase Bolivia’s foreign debt to more than 50% of GDP, the “safe limit” established by economists. While this is less than the ratio maintained by many countries (e.g. the US at 105%), it is a risky strategy at a time when commodity prices and export revenues are falling. And. as CEDLA notes, Bolivia is mortgaging its long-term future for domestic infrastructure, not for production which contributes to economic expansion.

With its growing presence in Bolivia, CEDLA and CEDIB argue, China is consolidating a relationship between the countries that is not complementary but asymmetrical, in investment as well as trade. China decides which projects to support and dictates the rules of the game, based on its own economic interest. The logic is not to develop Bolivia’s productive capacity, but to provide outlets for expansion of Chinese capital, generating profits for Chinese companies through energy and infrastructure development as a pathway to more lucrative extractive ventures and, potentially, a permanent Chinese foothold in the region.

For Bolivia, the relationship has deepened its dependency not only on China, but on a mode of development centered on megaworks and extractivism, that has led to growing social and political unrest. A significant portion of the country’s (current and future) resources are now pledged to outsized projects tailored to the interests and capacities of transnational conglomerates. In this sense, China’s presence in Bolivia has helped to foreclose opportunities for alternative development grounded in local and regionally-based sustainable production that could point towards resolution of the country’s deep-seated economic, social, and political conflicts.

Emily Achtenberg is an urban planner, a member of NACLA's Editorial Board, and the author of NACLA’s Rebel Currents blog covering Latin American social movements and progressive governments.

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